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Some businesses leave investors scratching their heads. Take Embraer (NYSE:ERJ), for example. This Brazilian firm gets roughly 75% of its revenue by supplying regional jets to commercial airline carriers. You wouldn't think such a business, subject as it is to the mood swings of the airline industry, would have even a prayer in an Olympic-sized competition such as this.

Oh, really?
Here's why it does: The carriers are always looking for new planes, especially when the new equipment is efficient. Take Boeing's (NYSE:BA) 787 Dreamliner, which claims to be roughly 20% stingier with gas than similar wide-body passenger aircraft. When I checked in on Boeing's progress in December, the company had sold more than 300 787s and was on its way to outselling rival Airbus for the first time in five years.

Embraer makes similar claims for its smaller craft. For example, it says that the Embraer 170, a regional jet with 70-78 seats and a range of 2,000 nautical miles (think Denver to Boston) can break even for its airline customers at only half full. That has to sound great to US Airways (NYSE:LCC), which has struggled to make money while flying planes more than 75% full.

Roomier is better
What's more, airlines are beginning to fully embrace the idea of going smaller and flying farther. JetBlue (NASDAQ:JBLU) was one of the first to do this, of course. Others are now following suit.

Take UAL Corp's (NASDAQ:UAUA) United Airlines, for example. It has instituted a regional jet service called "Explus," which includes a first-class cabin and the airline's well-known Economy Plus section, which makes for a roomier coach class. The early feedback is positive. According to a USA Today story, the airline has even scored points with business travelers who hate regional jets. Explus is also more profitable than what it replaced, according to United.

That's a huge win for Embraer. Its 70-seat jets are the backbone of the service and could signal a broader move away from the cramped 50-seaters made by the likes of Canada's Bombardier while still allowing airlines to employ smaller and more efficient, yet roomier jets.

Not just for airlines
Of course, this company isn't entirely about regional jets. It also has thriving defense and business jet units, and both are growing mightily. For example, in the recently completed third quarter, the business jet unit saw revenue climb by more than 58% year over year. Bear in mind, too, that Embraer has a new business jet on the horizon called the Phenom, but customers aren't delaying purchases. Instead, legacy business jets account for roughly 10% of Embraer's order backlog.

The story isn't as rosy in defense, but there's still plenty of growth to be had. Revenue climbed 39% in Q3. And the company recently booked a $235 million deal to provide the government of Colombia with 25 of its Super Tucano prop fighters.

A stock for the people
Embraer is also a very shareholder-friendly business. If that sounds trite, remember that we're talking about a foreign stock. As such, it doesn't have to follow the same quarterly filing covenants as do U.S. firms. But it does anyway. In fact, many businesses operating on our shores could take a lesson from the level of disclosure in Embraer's quarterly earnings releases.

It also recently took steps to put all shareholders -- even foreign holders of its American Depository Receipts, or ADRs (find out what these are) -- on equal footing by recapitalizing the company. A vote on the new structure isn't expected till March, but there's no reason to assume the proposal won't pass.

A winning valuation
Finally, and best of all, Embraer looks cheap. Let's run the numbers: Earnings were $380 million in its last fiscal year, and there were 175.55 million diluted ADRs outstanding in the most recent quarter. Comparing the two gives us $2.16 in per stub net income, and enough to generate a back-of-the-napkin valuation.

First, however, we need to decide on both an earnings growth rate and a fair multiple to earnings in 2010. Let's begin with the growth rate. Analysts project 19% growth annually over the next five years.

I think that's, um, aggressive. After all, Embraer faces currency risk with the rapidly rising Brazilian real, which may spook overseas buyers. And the commercial airline business has been about as stable as nitroglycerin over the past five years. Do you really think that's going to change soon? I don't. So I'd prefer to use the industry average growth rate, which is 12%:















Now we need to decide on a multiple. I prefer using a historic average. Embraer's P/E over the past four years has averaged something in the vicinity of 20. That seems like a fair multiple to 2010 earnings, as well, especially since these planes have the potential to change the way airlines do business. Do the math -- $3.81 times 20 -- and you'll get a valuation of $76 per share, enough for a 96% gain in five years, and that's before dividends.

The Foolish bottom line
Embraer is a strong business in a weak market, and, like a great Olympic athlete, is peaking at exactly the right time. For bold investors who don't mind a little added risk, it may be the just the stock your portfolio needs to take home the gold.

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Embraer and JetBlue are Motley Fool Stock Advisor selections. Take the newsletter for a free 30-day spin .

Fool contributor Tim Beyers hasn't yet flown on an Embraer jet, but he's looking forward to the experience. Tim didn't owns shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile . The Motley Fool has an ironclad disclosure policy .